Month: February 2005

From day one, I got into blogging not knowing what to expect and figuring out the best way to learn about a market is to dive into it and become a user. So I did that 18 months ago assuming that the time I spent as a blogger would either help me find compelling investment opportunities or provide me with in depth knowledge to help existing portfolio companies leverage this new opportunity. Since becoming an avid blogger and reader, it is clear to me that embedded ads in RSS feeds will be a key way for content owners to monetize their assets. First, the fact of consuming RSS feeds will typically reduce traffic at many publishers’ websites giving them less opportunity to monetize their assets. Ads in RSS will help publishers overcome the lower traffic to their sites while still providing their users with up to date content. Secondly, ads embedded in RSS feed gives great targeting opportunities for advertisers and publishers. Hopefully this will allow for greater clickthrough rates. Given these factors and the fact that users want free content, I believe ads embedded in RSS will become a defacto way for publishers to monetize their assets and for users to continue to consume content for free. I also believe that as we morph into podcating and vlogs that publishers will find ways to monetize their content through automated embedded audio and video ads. Give this some time as there is not enough content out there, but I see a world where a new service is created which will allow rich media publishers to automatically embed audio and video ads as simply as contextual based text ads.

Given this backdrop, I am excited that Morever Technologies (a portfolio company) and Kanoodle recently launched a partnership called FeedDirect RSS Ads. Quite simply, FeedDirect will allow content owners to not only monetize their assets with content-targeted sponsored links via Kanoodle but also get maximum distribution through the Moreover network. All it takes is a few clicks to sign up and begin generating revenue. As a VC, one of the cliches we often talk about is eating your own dog food. In other words, entrepreneurs and VCs, where applicable, should be users of products or services they create or in which they invest. To that end, I am changing my RSS feed to incorporate the FeedDirect service. From a transparency perspective, I plan on sharing some of my data with you as my RSS feeds get converted. To subscribe and test out the FeedDirect service, please change my feed to this link. If these ads annoy you or if you have thoughts on improving this, please let me know.

A number of companies are developing software and sytems which rely on packet processing at high speeds to deliver their respective functionality. This includes companies in the networking and security space. The debate over custom ASICs versus off-the-shelf components has raged on over the years. Over the last five years a new class of chip has arrived on the scene called the network processor. It is supposed to give the engineer the speed of ASICs with the flexibility of software. If you are interested in learning more about NPUs and the debate over the merits of NPUs versus ASICs, I suggest reading this article by Douglas Comer in the Internet Protocol Journal (link via Martin Tobias). Douglas sums up the debate as follows:

Although the demand for speed pushed engineers to use ASIC hardware in third-generation designs, the results were disappointing. First, building an ASIC costs approximately US$1 million. Second, it takes 18 to 22 months to generate a working ASIC chip. Third, although engineers can use software simulators to test ASIC designs before chips are manufactured, networking tasks are so complex that simulators cannot handle the thousands of packet sequences needed to verify the functionality. Fourth, and most important, ASICs are inflexible.

The inflexibility of ASICs impacts network systems design in two ways. First, changes during construction can cause substantial delay because a small change in requirements can require massive changes in the chip layout. Second, adapting an ASIC for use in another product or the next version of the current project can introduce high cost and long delays. Typically, a silicon respin takes an additional 18 to 20 months.

Given the need for flexibility and speed to market (particularly in the security space), a number of companies I have seen over the last few years have taken advantage of NPUs to deliver product with good enough performance with more up-to-date functionality than their ASIC brethren. As we move on, I expect to see further improvements in NPUs in terms of speed and programmability as we all continue to recognize that the value is in the software.

Last year at this time, I was at Demo in Arizona watching a couple of my portfolio companies launch new products and networking with other VCs and entrepreneurs. Given my travel schedule of late, I decided to go to Linuxworld in Boston for a day and follow Demo from many of the bloggers like Jeff Nolan. It seems that the consensus view from Demo was that there were lots of interesting products but nothing that blew the audience away. I, too, can say the same about Linuxworld. After a few meetings in the morning, I decided to walk the expo hall to see the various offerings. I saw my fair share of companies that sold into the high performance computing (HPC) market with various clustered file servers, data replication, and workflow application software. I also saw a number of companies offering tools to better manage deployment and performance of Linux boxes. Then there were a few companies selling enterprise applications like document management platforms and antivirus and antispam software on Linux-not terribly exciting. Finally, there were various companies going after the desktop Linux market with operating systems and applications-while I found some of them intriguing, it is still quite early.

One area I did like was the market for software compliance. As we move to a componentized world where developers increasingly build in pieces of software from a variety of sources, how does a company know what they are using and from whom and more importantly what the licensing rights are for those components. 2 early stage companies going after this space are Palamida and Black Duck software. I had a chance to speak with one of the founders of Palamida, Theresa Bui Friday, and came away quite impressed. The Palamida software works like an antivirus scanner looking into code and checking against its compliance database to catalog your code base, identify whose components you are using, and then providing the user with the associated license and contact information. Increasingly IP compliance is becoming a big deal, especially when you talk to CIOs, and incorporating this type of automated scanner early in the development process can save customers a ton of headaches and potential dollars from law suits. I view this market as part and parcel with the source code scanning market. Increasingly, secure coding is being built into the QA process and companies are coming out with automated scanners to check for vulnerabilities before products go to GA. According to Reflective and NIST (full disclosure I am an advisory board member) it costs less than $0.10 to scan code early in the development process and up to $1,000 per line of code once a product is in GA.

Professor Noam Wasserman of HBS along with individuals from J. Robert Scott, Wilmer Cutler Pickering Hale and Dorr LLP, and Ernst & Young LLP put together an annual compensation report for venture-backed companies. If you are venture-backed and interested in participating and receiving a free copy of the report to baseline compensation for your employees, I suggest going to CompStudy to get started. I cannot tell you how many times executives at my portfolio companies ask me for comp numbers for certain roles in their geographic area. While there are biases in any report, it is helpful to get a few of these different surveys to make sure your new hire’s compensation requirements are in the ballpark. One final note-if you want to be included in the survey, please fill out by February 28.

I was talking with a friend of mine yesterday about doing business development deals, and he was quite frustrated by the process that he was experiencing with one potential partner. He was calling on the highest levels at the company and knew that the ultimate decision rested with an executive committee. He met with 4 of the 6 members of the committee and each meeting seemed to be better than the previous one. In his last meeting, one of the executive committee members told him to go to yet another person to get the deal done. My friend was caught in a classic case of pass the hat. Everyone was excited about doing a deal, yet no one was willing to step up and take ownership of it. Before assuming any deal will happen, you need to ask yourself a few questions such as:

1. Who owns the relationship? In the example above, everybody was excited about a potential partnership, yet no one stood up to champion the deal and own it.2. Who will get fired for not doing a deal? Every person has annual and quarterly objectives they need to hit. If doing a deal with your company creates more work, then why should they do it. However, if doing a deal with your company fits in the parameters of their overall goals, then you are probably in the right spot.3. Who will implement the deal? In many cases, VCs and entrepreneurs can do a great job calling on a high level with executives at a company. However, the executives at a company do not usually implement the deal. Once a deal is signed, you need to understand who the day-to-day interface will be and how you and your company can make that person look like a hero.

In conclusion, I told my friend to stop wasting his time with that company and to focus on other deals. As a startup your resources are limited and some of the major decisions you make at a company are what you are not going to do rather than what you are going to do. In other words, you need to know when to say no. If you can do that earlier in a business development or sales process, the better off you will be.